Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. Zooming in on an example, the Shenzhen Ysstech Info-Tech Co.,Ltd (SZSE:300377) share price dropped 62% in the last half decade. That's an unpleasant experience for long term holders. And some of the more recent buyers are probably worried, too, with the stock falling 40% in the last year. The falls have accelerated recently, with the share price down 20% in the last three months.
Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.
While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
During the five years over which the share price declined, Shenzhen Ysstech Info-TechLtd's earnings per share (EPS) dropped by 24% each year. The share price decline of 17% per year isn't as bad as the EPS decline. So the market may previously have expected a drop, or else it expects the situation will improve. The high P/E ratio of 71.29 suggests that shareholders believe earnings will grow in the years ahead.
You can see below how EPS has changed over time (discover the exact values by clicking on the image).
This free interactive report on Shenzhen Ysstech Info-TechLtd's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Shenzhen Ysstech Info-TechLtd's TSR for the last 5 years was -59%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
While the broader market lost about 13% in the twelve months, Shenzhen Ysstech Info-TechLtd shareholders did even worse, losing 39% (even including dividends). Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 10% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 4 warning signs for Shenzhen Ysstech Info-TechLtd (2 are concerning!) that you should be aware of before investing here.
But note: Shenzhen Ysstech Info-TechLtd may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Chinese exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.